Do you think this can explain the housing bubble in a way you will understand?
Question by Per aspera ad astra: Do you think this can explain the housing bubble in a way you will realize?
Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with a new advertising program that makes it possible for her customers to drink now, but pay later. Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers’ loans). Word gets around about Heidi’s “drink now, pay later” marketing technique and, as a result, increasing numbers of buyers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit. By supplying her customers freedom from immediate payment demands, Heidi gets no resistance when, at typical intervals, she substantially increases her costs for wine and beer, the most consumed beverages.
Consequently, Heidi’s gross sales volume increases massively.
A young and dynamic vice-president at the neighborhood bank recognizes that these customer debts constitute valuable future assets and increases Heidi’s borrowing limit. He sees no reason for any undue concern, considering that he has the debts of the unemployed alcoholics as collateral.
At the bank’s corporate headquarters, professional traders figure a way to make enormous commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t actually comprehend that the securities being sold to them as AAA secured bonds are genuinely the debts of unemployed alcoholics.
Nevertheless, the bond prices continuously climb, and the securities soon turn out to be the hottest-selling items for some of the nation’s leading brokerage houses. 1 day, even though the bond costs are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar. He so informs Heidi. Heidi then demands payment from her alcoholic patrons, but becoming unemployed alcoholics they can’t pay back their drinking debts. Considering that Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs. Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in cost by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the different BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for 3 generations, her beer supplier is taken over by a competitor, who right away closes the neighborhood plant and lays off 150 workers. Fortunately although, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached money infusion from their cronies in Government. The funds needed for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi’s bar. Any questions?
Finest answer:
Answer by IRS stealing your cash
No.
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